Role of Chinese Outward FDI in industrialization: Does Trade matters for African countries?

Abstract

Prosperous China, with its knowledge of industry and Foreign direct investment (FDI), with its enormous economic prospective, is a significant source of funding for African countries. In other words, Chinese FDIs have increased African production to meet the growing demand from the middle class. China's growing participation in the African continent has prompted debate about the effects of her presence. This paper tries to add to the discussion while also pursuing a objective for growth by providing an analytical response to the question, "Can China's FDI in Africa boost the region’s industrialization?". As a result, the goal of this study is to objectively quantify the impact of Chinese foreign direct investment over the process of industrialization in 20 African countries since China emerged as a foreign investor for emerging economies. This research deals with the evaluation of the CFDI-industrialization nexus based on panel data over the period 2003-2019 by using FGLS and PCSE models. This investigation will provide an in-depth understanding of how FDI works and how it affects the industrialization process in African nations. Results indicate a moderate positive correlation between CFDI and the industrialization process in African countries. Similarly, income and exports both have significant and positive effects on industrialization in Africa as it is directly related to the living standard of individuals and the principle of comparative advantage. The study's conclusions show that the industrialization procedure in the African region is not much impacted by the availability of electricity. The report contends that the irregularity of the electrical supply has made commercial activities in Africa vulnerable. The research's findings imply that the government should make use of the ethical governance structure to ensure regulations that give the industrial sector's long-term sustainability of power supply a high priority in order to support its economic activities.